BusinessDay contributing editor

Subdued: The RBA expects interest rates to stay on hold 'for some time yet'.

It's just one phrase in the latest board minutes but, given the restrained language of central bankers, it leaves no doubt about the role of Joe Hockey's first budget in subduing the economy.

Sitting around the table two weeks ago, the RBA board members decided the budget's impact on the economy over the next "couple of years" would be similar to previous episodes of fiscal consolidation. However:

"Beyond that horizon, the budget implied a more substantial fiscal consolidation than had earlier been projected."

While the politics and general commentary remain consumed by the details of this or that individual policy, the RBA is concerned about the big picture impact on the economy – and that, along with resources construction falling away, is keeping interest rates steady "for some time yet". I'd suggest "some time" has become longer since the budget.

It doesn't suit politicians to spell the impact of fiscal policy on the economy and employment. There may or may not be good reasons to shrink government's share of the economy, but better to give the impression that the forecast slowing of GDP growth is all the fault of resources construction slowing. The RBA isn't so restrained.

On several occasions in the latest minutes, the RBA reminds readers of the impact of deficit reduction while the private sector remains soft. The RBA confirms its earlier forecast that the year to the end of March was as good as it's going to get, at least until the year after next, which is a long way off in forecasting terms.

In the very short term, the budget has already been felt by the economy:

"Following strong growth in January, growth of the nominal value of sales had slowed over the three months to April, and the Bank's retail liaison suggested that growth had moderated further in May."

Basically, the big retailers have quietly told the bank (before most of them tell the ASX) that sales were down last month. Yet the RBA is wary of paying too much notice to the immediate budget-induced dive in consumer confidence:

"Measures of consumer sentiment had fallen sharply over the past month and were now below their long-run average levels. However, it was noted that while low-frequency movements in confidence measures had been broadly associated with trends in consumption spending, there was little evidence from the historical record that high-frequency movements carried much predictive content."

While the jury is out on that for now, fiscal policy will nonetheless have its way with growth:

"The expectation of substantial falls in mining investment, below-average growth of public demand and non-mining investment remaining subdued for a time implied that the pace of growth was likely to be a little below trend over the rest of this year and into the next."

RBA heavies have previously noted that public demand growth had been running at about half of what has been normal. The budget forecasts it will fall to about a quarter. And public investment as a share of the economy, already at its lowest level in at least three-quarters of a century, will be lower again in 2014-15.

Which all leaves the RBA dealing with uncertainty by leaving monetary policy hanging loose:

"Low interest rates were working to support demand, although it was difficult to judge the extent to which this would offset the expected substantial decline in mining investment and the effect of planned fiscal consolidation. Those uncertainties were likely to take some time to resolve."

As the government tries to meld the political cycle and the economic cycle then, the outlook is for a worse 2014-15 before some recovery in 2015-16 setting up a 2016-17 election budget – with the tighter fiscal contraction starting to bite thereafter.